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Optimising project NPV in the design phase

PIP has a robust ROCX methodology (Rigorous Optimisation of CapeX) for optimising the NPV of a capital project. The methodology identifies drivers of value and then systematically prioritises and assesses ways to increase revenue and reduce capital, risks, operating costs and time-to-first-profit. ROCX can be applied to any or all of the three stages of capital project design:

1. Business Case/ Pre-feasibility: At this stage, the key objective is to develop a better strategy, by scrutinising strategy assumptions, ensuring the asset matches the strategy and minimising the impact of business uncertainty and risks
2. Feasibility: The key objectives here are to kill “nice-to-haves” and critique trade-offs between capital/cost/revenue/risk as well as reviewing the process flow to identify idle capacity and unnecessary operating costs.
3. Detailed Design: The final stage challenges assumptions at a much lower level of detail as well as challenging the contingencies in the design against requirements.
   

PIP’s ROCX methodology has consistently helped our clients to improve the NPV of their projects by 15-25% through reducing cost and time and adjusting the design to what is really needed to maximize the return on capital and meet market requirements.

Case 1: Reduction of Capex and Lead Time for residue process plant

Context:

Our client had completed feasibility engineering work for installation of a plant to process waste material that had been dumped over decades of operation. While this had an attractive NPV, the client couldn’t take on much debt so PIP worked with engineering and operations staff to shorten time-to-profit and reduce the capital spend.

Approach:

1. Clarified benefits the capital was aiming to achieve. This involved developing a Value Driver Tree for the project so we could understand the economic drivers and their sensitivities to different options. This highlighted some elements of the capital with unclear benefits, and these were removed.
2. Developed full list of alternative options (capital and other). The engineers had focused on capital intensive solutions for each stage of the process - solutions that were always state of the art and with excessive flexibility. PIP put in place a process of going back and developing a full list of options for each stage of the process. With help from operations we were able to develop a number of options that had initially appeared counter intuitive to engineering.
3. Understood key risks that ruled out cheaper options and assessed different methods of reducing, managing or eliminating those risks. In a number of cases, there was a degree of uncertainty that required further trials.
4. Initiated pilot plant trials to test risks fully across three different technologies. Although there were many risks that needed to be tested, a process of assessing the economic trade-off for each risk reduced the list to three key technologies and three key risks.
5. Reviewed relative economics and risks of various options.
6. Critiqued time-to-profit determining the critical path (and other items that could become the critical path if not managed actively) and systematically generating ideas for how to reduce the time for critical path using PIP’s CPR methodology3.
7. Refined optimal solution after substantial trialing. With substantial refinement of the equipment design, operator procedures and elimination of root causes, a far cheaper solution was developed.

Result:

Capital was reduced by 95%, profit margin was increased 20% and time-to-first-profit was reduced from 1 year to 1 month.

Case 2: Reduction of Cost and Time of the 5 yearly campaign shut

Context:

Our client had a major 5 yearly campaign shut coming up in seven months. Because of the considerable cost of this shut (capital and lost production), we were asked to see how we could reduce its duration and cost. PIP worked with a small team including engineers and operations people, drawing on maintenance teams as needed.

Approach:

1. Consolidated the list of capital projects by area. Determined the rationale and capex for each project and the NPV of each.
2. Challenged the assumptions behind each project, identified main drivers of capital and alternative ways of delivering the planned benefits without capex (or by minimising capex):
   • improving procedures;
   • addressing the root cause of problems rather than symptoms;
   • adjusting existing equipment;
   • removing “nice-to-haves” with low contribution to NPV.
3. Reviewed marginal projects and identified ways to:
   • reduce the risk (eliminate, reduce or manage);
   • improve the NPV (increase benefits, reduce ramp up time, further reduce capex).

Result:

Reduced the capital spend for the 5 yearly campaign shut by 45 percent.

Case 3: Processing Facility location for greenfield mine

Context:

The design team for a greenfield mining operation had located the processing plant at the port, on the assumption that consolidating infrastructure there would reduce capital and operating costs. This was an assumption made more than a year ago in the early design phases and long forgotten. This assumption was identified during the ROCX process and examined in detail after initial assessments pointed to potential savings.

Approach:

1. Generated ideas and logic for facility location from a wide range of contributors including design engineering, EPCMs, processing designers, metallurgists/operators and business analysts. This flushed out many conflicting views on the best solution, based on anecdotes and other operations.
2. Ran “walkthrough” workshops for each location to test the behaviour of the ore in three key areas:
   • Ensuring consistent achievement of the product specification. The “walkthrough” workshops showed that, when processing at the port, grade information integrity (so blend predictability) was compromised, so additional capex and complexity would be required to achieve product quality. On the other hand, processing at the mine would make managing grade information and blending simpler.
   • Minimising system bottlenecks to ensure a clear path for production expansion. The “walkthrough” workshops showed that, while processing at the port would minimise offloading delays for trains, it would require a complex and challenging set of bunkers and stockpiles. On the other hand, dedicated plants at the mines would simplify the handling, control and blending of product.
   • Optimising materials handling and the impact on maintenance and equipment availabilities. Finer material has less wear and tear on equipment so assessments were made on the relative impact on availabilities and maintenance costs of processing at the mines (finer material), compared to at the ports (coarser).
3. Modeled revenue, capex and opex trade-offs of the alternative designs, challenging the hypothesis that it would be much more expensive (capex and opex) to process at the mine.

Result:

Location of the processing plant was changed from the port to the mine which:

• Improved integrity of grade information from various sources through system to final customer blend:
  • Improving capacity to deliver on-spec product and reducing off-spec penalty risks.
  • Streamlining the system flow, eliminating sampling stages, points of blending and possible re-blending.
• Lowered operating costs (with no increase in capex):
  • Eliminating an ore re-handling step leading to a simplified, leaner flowsheet.
  • Exploiting a low cost energy source available only at the mine.
  • Lower maintenance costs due to better materials handling profile of flowsheet.
• Improved operability and overall operational risk profile; removed potential sources of system downtime from port operations (ie risk of processing downtime moved behind buffer stockpile and rail system).
• Improved total NPV between $50-100 million, taking into account risk of lost revenues and penalties for off-spec, downtime, and the reduction of operating costs.

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